Captive Insurance Financial Statements by clu70841

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									The Farm Credit System Association
Captive Insurance Company




          Annual Report
              1999
                                                                                                     March 2000



Message to Subscribers

The Farm Credit System Association Captive Insurance Company (the Captive) enjoyed an unusually low
claims year in 1999. Claims were lower than expected for nine of its eleven lines resulting in net profit for
the year of $6.5 million on $7.4 million in premiums. This level of profit cannot be anticipated as it reflects
the volatile nature of the insurance industry. The added surplus from these earnings increased your
ownership in the Captive and strengthens its position in the event of an unusually high loss year.

Because of the strong financial position of the Captive, cash distributions of $2.9 million will be made to
its Subscribers this March. The Principal Subscribers, who initially funded the Captive, will receive
$900,000 to bring their current level of Contributed Surplus to our goal level of $75,000 for each Principal
Subscriber. And, all Subscribers will share in the remaining $2.0 million distribution. The Captive’s
success has allowed it to return over $10 million to its owners over the past four years.

The Captive embarked on several noteworthy projects during 1999. Working with a group of Farm Credit
System representatives, the Captive began to explore the possibility of consolidating the many Credit Life
plans currently in place with the goal of simplifying them while increasing the System’s profits from those
programs. We’ll continue these efforts in 2000.

The Captive performs pricing studies on each of its lines of coverage in three year cycles. During 1999,
pricing studies were completed for the D&O, Bankers Blanket Bond, Fiduciary, Owned Property, Lenders
Single Interest, Auto Physical Damage and Mortgage/Chattel Impairment coverages. These studies
update premiums based on current and projected data for exposures and losses. Premiums for these
seven lines for 2000-2002 will be based upon these studies and are anticipated, in total, to increase by an
average 4% per year.

The Year 2000 came and went without the System experiencing the “y2k” computer problems that many
predicted. The diligence with which the System addressed this issue made y2k a non-issue for the
Captive, and to date, no “y2k” claims have been received.

The Subscribers Advisory Committee, the governing body of the Captive, and FCCServices, Inc., the
Attorney-In-Fact, remain dedicated to providing stable, reliable, and cost effective alternatives for insuring
your risks.

Sincerely,



John E. Lovstad, Chairman and President




                10375 East Harvard Avenue, Suite 220 • Denver, CO 80231 • Telephone (720) 747-4200
                      Mailing Address: P.O. Box 5130 • Denver, CO 80217 • Fax (720) 747-4202
The Farm Credit System Association Captive Insurance Company
Report of Management


 The financial statements of the Captive are prepared by management, which is
 responsible for their integrity and objectivity, including amounts that must
 necessarily be based on judgments and estimates. The financial statements have
 been prepared in conformity with accounting practices prescribed or permitted by
 the State of Colorado Division of Insurance. The financial statements, in the
 opinion of management, present fairly, in all material respects, the financial
 condition of the Captive at December 31, 1999 and 1998, and the results of its
 operations and its cash flows for the years then ended in conformity with the
 statutory basis of accounting as further described in the notes to the financial
 statements. Other financial information included in this Annual Report is
 consistent with that in the financial statements.

 To meet its responsibility for reliable financial information, management depends
 on accounting and internal control systems which have been designed to provide
 reasonable, but not absolute, assurance that assets are safeguarded and
 transactions are properly authorized and recorded. The systems have been
 designed to recognize that the cost must be related to the benefits derived. The
 financial statements are examined by Dollinger, Smith & Co., independent
 accountants, which also conducts a review of internal controls to the extent
 necessary to comply with generally accepted auditing standards. The Captive is
 also subject to examination by the State of Colorado Division of Insurance.

 The Subscribers Advisory Committee has overall responsibility for a system of
 internal controls and financial reporting, as provided by Farm Credit Council
 Services, Inc., as Attorney-in-Fact. The Subscribers Advisory Committee has
 established an Audit Committee and an Investment Committee. The Audit
 Committee meets periodically with management and the independent accountants
 to review the scope and results of their work. The independent accountants have
 direct access to the Audit Committee. The Investment Committee meets
 periodically to review and evaluate the investment guidelines and portfolio,
 approve investment activities and to review related reports prepared by the
 investment managers.
                                     INDEPENDENT AUDITORS' REPORT


To the Subscribers Advisory Committee of The
Farm Credit System Association Captive Insurance Company:

We have audited the accompanying statutory statements of admitted assets, liabilities, and surplus of The Farm
Credit System Association Captive Insurance Company as of December 31, 1999 and 1998, and the related statutory
statements of income and changes in surplus and cash flows for the years then ended. These financial statements are
the responsibility of the Captive's management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

As described more fully in Note 2 to the financial statements, the Captive prepared these financial statements using
accounting practices prescribed or permitted by the Division of Insurance of the Colorado Department of Regulatory
Agencies which is a comprehensive basis of accounting other than generally accepted accounting principles. The
effects on the financial statements of the variances between the statutory basis of accounting and generally accepted
accounting principles, although not reasonably determinable, are presumed to be material.

In our opinion, because of the effects of the matter discussed in the preceding paragraph, the financial statements
referred to above do not present fairly, in conformity with generally accepted accounting principles, the financial
position of The Farm Credit System Association Captive Insurance Company as of December 31, 1999 and 1998, or
the results of its operations or its cash flows for the years then ended.

In our opinion, the financial statements referred to above present fairly, in all material respects, the admitted assets,
liabilities, and surplus of The Farm Credit System Association Captive Insurance Company as of December 31,
1999 and 1998, and the results of its operations and its cash flows for the years then ended, on the basis of
accounting described in Note 2.
The Farm Credit System Association Captive Insurance Company
Statutory Basis Statement of Admitted Assets, Liabilities, and Surplus



                                                                    1999                 1998

Admitted assets:

Cash and short-term investments                               $    6,799,584        $      148,175
Fixed maturity investments                                        37,272,725            39,026,476
   Total cash and investments                                     44,072,309            39,174,651

Accounts receivable                                                      123,572           43,469

Interest receivable                                                      517,932          530,251

   Total admitted assets                                      $ 44,713,813          $ 39,748,371

Liabilities:

Losses and loss adjustment expenses                           $ 14,446,201          $ 14,561,487
Unearned premiums                                                   72,316
Accounts payable and accrued expenses                              106,581                 93,444

   Total liabilities                                              14,625,098            14,654,931

Surplus:

Contributed surplus paid in by Principal
Subscribers                                                        1,800,000             2,300,000

Subscriptions receivable                                                 (25,000)          (50,000)

Surplus appropriated for regulatory purposes                             750,000          750,000

Unassigned surplus                                                27,563,715            22,093,440

   Total surplus                                                  30,088,715            25,093,440

   Total liabilities and surplus                              $ 44,713,813          $ 39,748,371


             The accompanying notes are an integral part of these statements.
The Farm Credit System Association Captive Insurance Company
Statutory Basis Statement of Admitted Assets, Liabilities, and Surplus



                                                                Year Ended December 31,
                                                                1999              1998

Underwriting income:

   Premiums earned                                       $     7,447,148      $    7,047,966

Underwriting expenses:

   Losses and loss adjustment expenses                         2,465,448           5,235,167
   Premium taxes                                                  37,236              35,211
   Other underwriting and administrative
   expenses                                                      798,685            732,020

                                                               3,301,369           6,002,398


Net underwriting income                                        4,145,779           1,045,568

Net investment income                                          2,324,496           2,345,791

Net income                                                     6,470,275           3,391,359

Surplus at beginning of year                                  25,093,440          23,264,439

Distributions to Subscribers                                  (1,500,000)         (1,500,000)
Distribution to Terminated Subscribers                                               (87,358)
Contributed Surplus - New Subscribers                              25,000             25,000

Surplus at end of year                                   $    30,088,715      $   25,093,440




             The accompanying notes are an integral part of these statements.
The Farm Credit System Association Captive Insurance Company
Statutory Basis Statement of Cash Flows



                                                       Year Ended December 31,
                                                       1999             1998

Cash flows from operating activities:
  Premiums collected                               $ 7,439,360        $     7,046,268
  Losses and loss adjustment expenses paid           (2,639,068)           (5,870,379)
  Loss expense recoveries                                58,334               144,868
  Underwriting and administrative expenses             (822,784)             (767,335)
  paid
  Investment income received                          2,441,925            2,243,909

       Net cash provided by operating activities      6,477,767            2,797,331

Cash flows from investing activities:
  Purchases of fixed-maturity investments           (12,887,406)          (15,819,308)
  Maturities of fixed-maturity investments           14,536,048            11,303,924

       Net cash from investing activities             1,648,642            (4,515,384)

Cash flows from financing activities:
  Distribution of Contributed Surplus                  (500,000)             (500,000)
  Distribution of Allocated Savings                  (1,000,000)           (1,000,000)
  Distribution to Terminated Subscribers                                      (87,358)
  Contributed Surplus paid-in                           25,000                 25,000

       Net cash used in financing activities         (1,475,000)           (1,562,358)

Net change in cash and short-term investments         6,651,409            (3,280,411)

Cash and short-term investments at:

Beginning of year                                      148,175             3,428,586

End of year                                        $ 6,799,584        $        148,175




            The accompanying notes are an integral part of these statements.
The Farm Credit System Association Captive Insurance Company
Notes to Statutory Basis Financial Statements



1. ORGANIZATION

    The Captive provides eleven different insurance coverages (as shown in the table below) to
    the member organizations of the Farm Credit System and The Farm Credit Council (“FCC”),
    a trade association for the Farm Credit System (collectively called "Subscribers"). At
    December 31, 1999, the Farm Credit System entities insured by the Captive include six
    Farm Credit Banks, one Agricultural Credit Bank, four service corporations and
    approximately one hundred seventy-two associations.

    Coverage provided                           Per occurrence limit   Aggregate limit
    Directors and officers liability                $5,000,000         $10,000,000
    Fiduciary liability                             $5,000,000         annual
    Bankers blanket bond                            $2,500,000         aggregate(a)
    Auto liability                                  $1,000,000         $7,000,000
    General liability                               $1,000,000         three year
    Workers compensation                            $1,000,000         aggregate
    Medical stop loss                                $500,000          $1,000,000
    Owned property                                    $50,000          $2,100,000
    Lenders single interest                           $50,000          two and a half
    Mortgage/chattel impairment                  $50,000/$10,000       year aggregate
    Auto physical damage                             $25,000(b)        N/A
   (a)
         Captive retains $1 million per loss beyond aggregate.
   (b)
         Losses in excess of per occurrence limit accrue toward Workers Compensation, General
         Liability and Auto Liability aggregate.

Reciprocal insurance results from an interchange among subscribers of reciprocal agreements
of indemnity, through an attorney-in-fact common to all of the Subscribers. Pursuant to the
Subscribers Agreement, a Subscribers Advisory Committee is elected by the voting Subscribers
("Principal Subscribers"). The Principal Subscribers include the seven banks, four service
corporations and FCC described above. The Captive is managed by FCCServices, Inc.
(FCCS), a wholly-owned subsidiary of FCC, as Attorney-in-Fact, as directed by the Subscribers
Advisory Committee and subject to the limitations of the Subscribers Agreement.

The Captive had a facultative reinsurance arrangement for the Medical Stop Loss line of
coverage for 1999 for claims exceeding the $500,000 limit of the Captive. There were no
reinsurance arrangements in 1998.
The Farm Credit System Association Captive Insurance Company
Notes to Statutory Basis Financial Statements



2. SIGNIFICANT ACCOUNTING POLICIES

   Basis for Presentation

   The accompanying financial statements have been prepared in accordance with accounting
   practices prescribed or permitted by the State of Colorado Division of Insurance. Such
   accounting practices differ from generally accepted accounting principles.

   The preparation of financial statements requires management to make estimates and
   assumptions that affect the reported amounts of assets and liabilities and disclosure of
   contingent assets and liabilities at the date of the financial statements and the reported
   amounts of revenues and expenses during the reporting period. Actual results could differ
   from those estimates.

   Premiums

   All premiums written are on a calendar year basis. Premiums written are recognized as
   revenue on a pro-rata basis over the policy periods.

   Cash and Investments

   Short-term investments include investments with original maturity dates, when acquired, of
   twelve months or less, in accordance with statutory accounting practices. Short-term
   investments are valued at amortized cost. Cash balances are swept into a money market
   account that is included with short-term investments.

   Fixed-maturity investments include investments with original maturity dates when acquired
   of more than twelve months and are comprised of fixed income securities recorded at
   amortized cost.

   Losses and Loss Adjustment Expenses

   The Captive's directors and officers liability, fiduciary liability, and medical stop loss liability
   policies are issued on a claims-made basis. The bankers blanket bond is issued on a
   discovered basis. The general liability, auto liability, workers compensation, owned
   property, lenders single interest, mortgage/chattel impairment and auto physical damage
   policies are issued on an occurrence basis. Liabilities for losses and loss adjustment
   expenses are based on actuarial estimates of the ultimate cost of reported claims and
   incidents as well as incurred but not reported claims. Such liabilities are necessarily based
   on estimates and, while management believes that the amount is adequate, the ultimate
   liability may be in excess of or less than the amounts provided.
The Farm Credit System Association Captive Insurance Company
Notes to Statutory Basis Financial Statements


     The estimated liabilities for losses and loss adjustment expenses are adjusted at least annually based on the
     report of an independent actuary reflecting historical claims experience.

     Attorney-in-Fact Fees

     Under the terms of the Subscribers Agreement, the Attorney-in-Fact is paid a fee for its services, as authorized
     by the Subscribers Advisory Committee. Attorney-in-Fact fees of $586,544 in 1999 and $558,613 in 1998 were
     charged to expense as incurred.
     Income Taxes

     The Captive is subject to federal income taxes. However, the Captive does not expect to incur a federal tax
     liability as it is entitled to a special tax deduction equal to the amounts allocated to its Subscribers accounts prior
     to the sixteenth day of the third month following its taxable year. It is the Captive's intention to so allocate any
     otherwise taxable income to its Subscribers and, therefore, no provision for income taxes has been made in the
     accompanying financial statements.

3.       PREMIUMS EARNED

     Premiums earned for the years ended December 31, 1999 and 1998 were:

                                                            1999                1998

             Directors and officers liability            $1,683,650          $1,631,303
             Fiduciary liability                            160,000             130,481
             Bankers blanket bond                           725,995             632,606
             Auto liability                                 781,830             740,220
             General liability                              392,838             366,137
             Workers compensation                         1,630,170           1,538,944
             Medical stop loss                              627,679             589,464
             Owned property                                 453,378             456,135
             Lenders single interest                        409,549             393,507
             Mortgage/chattel impairment                     53,181              55,880
             Auto physical damage                           528,878             513,289

                                                         $7,447,148          $7,047,966
The Farm Credit System Association Captive Insurance Company
Notes to Statutory Basis Financial Statements



4. INVESTMENTS

   At December 31, 1999 and 1998, the amortized cost and estimated market value of
   investments were as follows:

                                                            December 31, 1999
                                                           Gross          Gross         Estimated
                                        Amortized        Unrealized    Unrealized        Market
                                          Cost             Gains         Losses           Value

   Short-term investments           $ 6,799,584                                     $ 6,799,584
   Fixed-maturity investments:
     US Treasury notes                  16,793,138                    $   330,278       16,462,860
     US Government agencies              8,202,807                        162,336        8,040,471
     General obligation bonds            2,512,425                         71,004        2,441,421
     Corporate-debt securities           5,487,654   $        5,157        56,100        5,436,711
     Mortgage-backed securities          1,860,428                                       1,860,428
     Asset-backed securities             2,416,273                                       2,416,273
   Total Fixed-maturity                 37,272,725            5,157       619,718       36,658,164

                                    $ 44,072,309     $        5,157   $   619,718   $ 43,457,748


                                                            December 31, 1998
                                                           Gross          Gross         Estimated
                                        Amortized        Unrealized    Unrealized        Market
                                          Cost             Gains         Losses           Value

   Short-term investments           $     148,175                                   $     148,175
   Fixed-maturity investments:
     US Treasury notes                  10,892,169   $     465,433    $     3,463       11,354,139
     US Government agencies             13,469,402         138,850                      13,608,252
     General obligation bonds            2,519,689          37,880                       2,557,569
     Corporate-debt securities           5,521,663         169,664                       5,691,327
     Mortgage-backed securities          2,986,644          33,437                       3,020,081
     Asset-backed securities             3,636,909          27,097                       3,664,006
   Total Fixed-maturity                 39,026,476         872,361          3,463       39,895,374

                                    $ 39,174,651     $     872,361    $     3,463   $ 40,043,549
The Farm Credit System Association Captive Insurance Company
Notes to Statutory Basis Financial Statements


   The contractual maturities of the investments held at December 31, 1999 are:

                                      Amortized cost           Market value
       Within one year               $    9,010,369        $     9,008,487
       One to five years                 29,657,985             29,164,154
       Five to ten years                  5,403,955              5,285,107
                                     $ 44,072,309          $ 43,457,748

   Realized gains and losses on the sale of investments in 1999 were $19,286 and $1,979
   respectively. The 1998 realized gains and losses were $43,902 and $3,450 respectively.
   The estimated market values shown are based on NAIC Securities Valuation Office (SVO)
   market prices.

   In accordance with statutory practices, unrealized gains and losses are not recorded on the
   books.

5. LIABILITIES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

   A summary of the estimated liabilities for losses and loss adjustment expenses at December
   31, 1999 and 1998 is presented below:


                                                           1999               1998

   Directors and officers liability                    $ 5,876,163        $ 5,693,819
   Fiduciary liability                                     350,483            510,960
   Bankers blanket bond                                  2,016,379          3,152,111
   Auto liability                                        1,983,181          1,033,905
   General liability                                       531,792            497,124
   Workers compensation                                  2,513,490          2,305,888
   Medical stop loss                                       229,186            468,000
   Owned property                                          146,131            129,406
   Lenders single interest                                 141,547            138,554
   Mortgage/chattel impairment                              33,833             37,774
   Auto physical damage                                    107,616             95,746
   Unallocated loss adjustment expenses                    516,400            498,200

                                                       $ 14,446,201       $ 14,561,487
The Farm Credit System Association Captive Insurance Company
Notes to Statutory Basis Financial Statements



     The decrease in liabilities for 1999 and 1998 respectively, consist of the following:

                                                                1999                    1998
     Incurred claims related to:
         Current year                                      $ 6,942,186             $ 6,526,359
         Prior year                                         (4,476,738)              (1,291,192)
     Total incurred                                          2,465,448                5,235,167


     Paid claims (net of recoveries) related to:
         Current Year                                         1,510,344                1,387,313
         Prior Year                                           1,070,390                4,336,869
     Total paid                                               2,580,734                5,724,182

     Decrease in liability                                 $ (115,286)             $    (489,015)


6.   LETTER OF CREDIT

     Effective January 1, 1999, a letter of credit was issued by CoBank, a Principal Subscriber,
     to St. Paul Fire and Marine Insurance Companies (St. Paul) to guarantee the Captive’s
     reimbursement to St. Paul for claims they pay on the Captive’s behalf as claims
     administrators for the workers compensation line of coverage, as well as selected auto
     liability and general liability claims. The amount guaranteed by this letter of credit is
     $2,349,050 for 2000.

7.   STATUTORY AND REGULATORY REQUIREMENTS

     In accordance with the Colorado Captive Insurance Laws, an association captive insurance
     company must maintain total capital and surplus of $500,000; however, the Insurance
     Commissioner (Commissioner) of the State of Colorado may require that additional capital
     or surplus, or both, be maintained. The Commissioner requires the Captive to maintain
     minimum capital and surplus of $750,000. This $750,000 is required to be an appropriation
     of surplus for regulatory minimum capital. In connection with this requirement, the Captive
     has a fixed-maturity investment in a restricted joint-access account with the Commissioner.
     At December 31, 1999 the amortized cost and market value of the investment were
     $761,167 and $752,348 respectively.
The Farm Credit System Association Captive Insurance Company
Notes to Statutory Basis Financial Statements


8. CONTRIBUTED AND ALLOCATED SURPLUS

   Should a Principal Subscriber terminate its interest in the Captive, its pro rata share of any
   balance of contributed surplus will be returned within six months of the termination, subject
   to the determination by the Subscribers Advisory Committee that any repayment will not
   impair the financial stability of the Captive. There were no liquidation distributions made in
   1999.

   In 1999, the Captive distributed $500,000 of contributed surplus in accordance with the
   capital management plan to reduce each Principal Subscriber’s balance to $75,000 over a
   five-year period.

   The Subscribers Advisory Committee allocates among individual Subscribers the Captive's
   taxable income for the year. The Captive is allowed a tax deduction for amounts so
   allocated. Such amounts allocated may be returned or credited to the Subscribers at the
   discretion of the Subscribers Advisory Committee, subject to regulatory requirements. In
   1999, the Captive distributed $1,000,000 of allocated Subscriber Savings Accounts to its
   Subscribers.

   Should a Subscriber terminate its interest in the Captive, the balance of its allocated
   Subscriber Savings Account will be paid within six months of termination of coverage,
   subject to the provisions of the Subscribers Agreement. There were no such distributions
   made in 1999.

   A reconciliation between the net income shown by the accompanying financial statements
   and taxable income allocated to Subscribers for the years ended December 31, 1999 and
   1998 follows:
The Farm Credit System Association Captive Insurance Company
Notes to Statutory Basis Financial Statements


                                                            1999                1998

   Net income per accompanying financial statements     $6,470,275          $ 3,391,359

   Add (deduct) for income tax purposes:
     Net loss reserve adjustments                         (452,583)              85,705
     Accretion of market discount on investments          (211,001)            (168,562)
     Interest income recognized for market discount
        on matured investments                             421,816             139 065
   Other, net                                                2,471               1,306

   Taxable income allocated to Subscribers               6,230,978           3,448,873

   Allocated at beginning of year                       25,219,574          22,809,673
   Distributions to Subscribers                         (1,000,000)          (1,000,000)
   Distributions to Terminated Subscribers                                      (38,972)

   Allocated at end of year                             $30,450,552         $25,219,574


9. SUBSEQUENT EVENTS

   In accordance with the Captive’s capital management strategy, the Subscribers Advisory
   Committee approved, at its February 24, 2000 meeting, the distribution of $2,900,000 to
   Subscribers, payable in March 2000. The distribution consists of a return of $900,000 of
   contributed surplus and $2,000,000 of allocated Subscriber Savings Accounts.
The Farm Credit System Association Captive Insurance Company
Management’s Discussion and Analysis of Financial Condition and Results of Operations


Results of               Net income for 1999 of $6.5 million was 87% of premiums and was
Operations               almost double 1998’s income of $3.4 million. Loss experience for the
                         year was much better than expected for all lines except Auto Liability,
                         which had a single claim hit the $1,000,000 per occurrence limit, and
                         Medical Stop Loss, which had over $860,000 in losses paid this year.

                            Premiums – Premiums earned in 1999 were $7.4 million versus
                             $7.0 million in 1998. The increase of $.4 million was due to rate
                             increases in all lines except Auto Liability.

                            Loss and Loss Adjustment Expense – Loss and loss adjustment
                             expenses of $2.5 million reflected a 53% decrease from $5.2
                             million in 1998. The total number of claims and paid loss and loss
                             adjustment expenses were significantly below projections and
                             1998 levels. Loss reserves for all lines were computed on the
                             same basis as previous years, with the exception of Directors &
                             Officers, which was calculated using a reduced 87% confidence
                             level from 91% in 1998.

                            Other Underwriting and Administrative Expenses – Other
                             underwriting and administrative expenses increased by $67,000
                             from 1998 primarily due to an increased management fee, the A.
                             M. Best Company rating fee, and the completion of two pricing
                             studies.

                            Net Investment Income – Net investment income remained
                             unchanged at $2.3 million. Although investable balances were
                             higher, yields in fixed income securities were lower in 1999. The
                             investment portfolio remains focused on high quality fixed income
                             securities.

                             The selected financial data and key ratios presented on pages 21
                             and 23 show the fluctuation in the results of operations over the
                             past five years as loss experience and actuarial adjustments to
                             loss reserves can skew the results of individual years significantly.
                             Surplus has grown from $20.2 million to $30.1 million over this
                             period. The Captive coverage for D&O, Fiduciary, Bankers Blanket
                             Bond and Medical Stop Loss are for risks with expected low
                             frequency but potential high severity of claims; therefore, a higher
                             level of loss reserves and surplus are considered necessary.
The Farm Credit System Association Captive Insurance Company
Management’s Discussion and Analysis of Financial Condition and Results of Operations



                                                               Expenses
                               I nv est ment                     $0.8
                                                                                    Losses
                                  I ncom e
                                                                                     $2.5
                                     $2.3


        Premium s                                          Net Income
          $7.4                                                $6.5
                    Revenues                                              Results



Liquidity and            The Captive’s capital funding was initially provided by $6.3 million of
Funding                  contributed surplus paid in by the Principal Subscribers. Funding
                         generated from earnings through December 31, 1999 was $31 million.
                         In 1999, the Captive made its third cash distribution to its Subscribers,
                         returning $500,000 of contributed surplus to the Principal Subscribers
                         and $1 million of allocated Subscriber Savings Accounts to all
                         Subscribers. The Captive plans to continue contributed surplus
                         distributions annually until it reaches its targeted level of contributed
                         surplus of $75,000 per Principal Subscriber. In addition, the Captive
                         plans to make annual distributions of allocated Subscriber Savings,
                         provided the Captive’s surplus level is adequate to allow for them.

                         Total assets of $44.7 million are more than adequate to cover the
                         known obligations of the Captive, including the actuarial estimates of
                         future payments for losses incurred but not reported, as of December
                         31, 1999.

                         The Captive does not have any outstanding debt as of December 31,
                         1999. As of January 1, 2000, the Captive has a line of credit of $2.3
                         million with CoBank, a Principal Subscriber, to guarantee a letter of
                         credit issued in favor of the claims administrators for the General
                         Liability, Auto Liability and Workers Compensation lines of coverage.
The Farm Credit System Association Captive Insurance Company
Management’s Discussion and Analysis of Financial Condition and Results of Operations


Capital Resources        Total surplus at December 31, 1999 was $30.1 million or 67% of total
                         assets. The State of Colorado requires the appropriation of surplus in
                         amounts equal to the Captive’s minimum capital requirements of
                         $750,000. Unassigned surplus increased by $5.5 million in 1999 to
                         $27.6 million. The total allocated Subscribers’ Savings Accounts at
                         December 31, 1999 was $30.5 million. This represents cumulative
                         taxable income from the inception of the Captive less the $3 million
                         cumulative distributions made from 1997 through 1999, and minor
                         distributions to terminated Subscribers. The allocated Subscribers’
                         Savings are considered unassigned surplus, because, in the event the
                         Captive would experience financial difficulties, such amounts would be
                         available for settlement with creditors.

                         There are no planned capital expenditures for 2000.
The Farm Credit System Association Captive Insurance Company
Subscribers Advisory Committee and Officers



The governing body of the Captive is the Subscribers Advisory Committee (the Committee)
which is comprised of seven members, all of whom hold positions of employment within the
Farm Credit System. A Committee member may not serve more than two consecutive terms.
Committee             John E. Lovstad         Chairman and President
Members                Title:                 Administrative Officer
                                              AgAMERICA, FCB/Western Farm Credit Bank
                        Term of Office:       February 1998 – February 2001

                      Thomas S. Welsh         Vice Chairman
                       Title:                 Executive Vice President, Chief Administrative
                                              and Legislative Officer
                                              AgFirst Farm Credit Bank
                        Term of Office:       February 1998 – February 2001

                      Darryl W. Rhodes        Chairman of the Investment Committee
                       Title:                 Executive Vice President, Finance and Chief
                                              Financial Officer
                                              Farm Credit Bank of Wichita
                        Term of Office:       September 1996 - February 2000

                      Michael A. Luby         Chairman of the Nominating and Audit
                                              Committees
                        Title:                Senior Vice President - Operations Division
                                              Manager
                                              CoBank
                        Term of Office:       September 1996 - February 2000

                      Alton K. McRee          Member of the Audit Committee
                       Title:                 President and Chief Executive Officer
                                              FLBA of South Mississippi
                        Term of Office:       February 1999 – February 2002

                      Dianna R. Ragan         Member of the Audit Committee
                       Title:                 General Counsel and Corporate Secretary
                                              FCS of Mid-America
                        Term of Office:       February 1999 – February 2002

                      Gary R. Dyer            Member of the Nominating and Investment
                                              Committees
                        Title:                President and Chief Executive Officer
                                              FCS Southwest, ACA
                        Term of Office:       September 1996 – February 2000
The Farm Credit System Association Captive Insurance Company
Other Officers and Authorized Representatives



 Other                Dorothy J. Mayes, Secretary
 Officers                Title: Manager, Risk Management Accounts
                                 Risk Management, Insurance and Legal Services Group
                                 FCCServices, Inc.

                      Karen M. Miller, Vice President and Treasurer
                         Title: Senior Vice President – Customer Support Group and Chief Financial
                                Officer
                                FCCServices, Inc.

                      Gary R. Dillinger, Vice President and General Counsel
                         Title: Senior Vice President – Risk Management, Insurance and Legal
                                 Services Group, General Counsel and Corporate Secretary
                                 FCCServices, Inc.


 Additional           Timothy D. Steidle
 Member of the           Title: Vice President – Director of Funding and Investments
 Investment                     CoBank
 Committee


                                                Title with FCCServices, Inc.
 Attorney-in-Fact     Michael D. Frey           Chief Executive Officer
 Authorized           Gloria A. Brosius         Manager, Risk Management Programs
 Representatives
                      Debbie L. Dettmer         Manager, Risk Management Claims
                      Alton E. Parrish          Manager of Accounting
The Farm Credit System Association Captive Insurance Company
Selected Financial Data – Five Years Ended December 31, 1999


(in thousands)

Statement of Financial Condition      1999           1998        1997       1996       1995
(Statutory Basis)

Cash and short-term investments     $ 6,800      $    148      $ 3,429    $ 4,252    $ 1,118
Other investments and receivables     37,914       39,600        34,979     32,576     29,871
Total admitted assets               $ 44,714     $ 39,748      $ 38,408   $ 36,828   $ 30,989

Estimated liability for losses      $ 14,446     $ 14,562      $ 15,050   $ 12,105   $ 10,760
Other current liabilities                179           93            94      4,560         55
Total liabilities                     14,625       14,655        15,144     16,665     10,815

Contributed surplus                    1,800         2,300        2,773      2,773      6,273
Less-Subscriptions receivable             (25)          (50)          0          0          (9)
Total contributed surplus              1,775         2,250        2,773      2,773      6,264

Appropriated surplus                     750          750           750        750      1,551
Unassigned surplus                    27,564       22,093        19,741     16,640     12,359
Total Surplus                         30,089       25,093        23,264     20,163     20,174
Total liabilities and surplus       $ 44,714     $ 39,748      $ 38,408   $ 36,828   $ 30,989


Statement of Income                   1999           1998        1997       1996       1995
(Statutory Basis)

Premiums earned                     $ 7,447      $ 7,048       $ 6,231    $ 5,473    $ 4,969
Total losses and underwriting
expenses                              3,301        6,002         5,245      3,024      2,990
Net underwriting income               4,146        1,046           986      2,449      1,979
Net investment income                 2,324        2,345         2,116      2,030      1,616
Net Income                          $ 6,470      $ 3,391       $ 3,102    $ 4,479    $ 3,595
The Farm Credit System Association Captive Insurance Company
Selected Financial Data – Five Years Ended December 31, 1999



Key Ratios                                 1999         1998         1997          1996           1995

Premiums to surplus                       0.248        0.281        0.309         0.271          0.246
Liabilities to surplus                    0.484        0.584        0.751         0.827          0.536
NET LEVERAGE                              0.732        0.865        1.060         1.098          0.782

Loss ratio                                0.331        0.743        0.733         0.450          0.504
Expense ratio                             0.112        0.109        0.109         0.102          0.098
Combined ratio                            0.443        0.852        0.842         0.552          0.602
Net investment income ratio              (0.312)      (0.333)      (0.340)       (0.371)        (0.325)
OPERATING RATIO                           0.131        0.519        0.502         0.181          0.277

RETURN ON SURPLUS                         25.8%        14.6%        15.4%         22.2%          21.7%

OVERALL LIQUIDITY                        306.8%       271.2%       253.6%       221.0%         286.5%
Loss reserves to surplus                  48.0%        58.0%        64.7%        60.0%          53.3%


DEFINITIONS OF KEY INSURANCE INDUSTRY RATIOS

NET LEVERAGE               -   Sum of ratio of premiums to surplus and ratio of liability to surplus
                               (ratio used to measure exposure to pricing inadequacies as well as
                               errors in estimating liabilities). The normal range for the insurance
                               industry is 5.0 to 6.0.
                           -   Premiums to surplus - Current year premiums earned divided by
                               total surplus at end of year. The normal range is 1.5 to 2.0.
                           -   Liabilities to surplus - Total liabilities divided by total surplus at end
                               of year. The normal range is 3.0 to 3.8.
The Farm Credit System Association Captive Insurance Company
Selected Financial Data – Five Years Ended December 31, 1999


DEFINITIONS OF KEY INSURANCE INDUSTRY RATIOS (continued)


OPERATING              -   Sum of loss ratio and the expense ratio, less the net investment
RATIO                      income ratio (indicates the profitability of operations with a ratio
                           below 1.0 signifying a profit). The normal range is .85 to .95.
                       -   Loss ratio - Total losses and loss adjustment expenses divided by
                           premiums earned.
                       -   Expense ratio – Sum of premium taxes and general administrative
                           expenses divided by premiums earned.
                       -   Combined ratio – Sum of loss and expense ratio.
                       -   Net investment income ratio - Investment income, less related
                           investment expenses, divided by premiums earned.

RETURN ON                  Net income divided by total surplus as of the prior year-end. The
SURPLUS                    normal range is 5% to 15%.

OVERALL                -   Ratio of total admitted assets to total liabilities. The normal range
LIQUIDITY                  is 110% to 150%.
                       -   Loss reserves to surplus - Liability for reserves for losses divided
                           by total surplus; ratio measures the potential impact on surplus of a
                           deficiency or redundancy in loss reserves. The normal range is
                           200% to 300%.


All of the Captive’s key ratios for 1999 are within or better than the normal range.

								
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